German equities, measured by the German Equity Index (DAX), have broken out into new all-time highs while the euro has trended lower or sideways since it hit a high in 2008. The reason for this divergence is in part because Germany has remained the engine of growth in Europe and a relative bastion of safety throughout the European crisis. Despite the eurozone’s economic turbulence in 2012, the DAX recorded a 29.1% gain in 2012. And as of October 4, 2013, the DAX experienced a 13.3% gain year-to-date.
On the other hand, the euro’s performance is partly a reflection of broader economic concerns across the eurozone economies. Given the persistent weakness in some pockets of the eurozone, the outlook for the euro currency is less clear.
Yet there is a strong case to be made that a weaker euro would be very supportive for German equities, just as a weak yen has been very supportive for Japanese equities over the last year. In fact, there have been extended periods in the last decade when the relationship between the euro and German equities was very much like the relationship (i.e., the negative correlation) between the yen and Japanese equities.
- Utility Industry
- Australia International News